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U.S. Secretary of State John Kerry (R) shakes hands with India's Finance Minister Arun Jaitley as U.S. Commerce Secretary Penny Pritzker (C) watches before the start of their meeting in New Delhi July 31, 2014.

NEW DELHI/GENEVA (Reuters) - U.S. Secretary of State John Kerry said on Thursday he was hopeful that differences between India and much of the rest of the world over a major trade agreement could be resolved, despite only hours remaining before the deal must be signed.

New Delhi has insisted that, in exchange for signing the trade facilitation agreement, it must see more progress on a parallel pact giving it more freedom to subsidise and stockpile food grains than is allowed by World Trade Organization rules.

Diplomats have been taken aback by India's threat to veto trade facilitation, a deal that aims to speed trade by standardising customs rules and slashing red tape.

The WTO deal must be signed in Geneva on Thursday, and India's ultimatum has revived doubts about the future of the WTO as a negotiating body.

"We are obviously encouraging our friends in India to try to find a path here where there is a compromise that meets both needs, and we think that's achievable. We hope that it's achievable," Kerry told reporters, after holding talks with Indian leaders as part of an annual strategic dialogue.

India's new nationalist government has demanded a halt to a globally agreed timetable on new customs rules and said a permanent agreement on food stockpiling and subsidies aimed at supporting the poor must be in place at the same time, well ahead of a 2017 target set last December in Bali.

Kerry, whose visit to India was aimed at revitalising bilateral ties but has been overshadowed by the standoff, said the United States understood India's position.

"We do not dismiss the concerns India has about (the) large number of poor people who require some sort of food assurance."

But he had earlier warned his hosts that they stood to lose if they refused to budge.

"Right now India has a four-year window where it's been given a safe harbour where nothing happens," he told NDTV.

"If they don't sign up and be part of the agreement, they will lose that and then (they will) be out of line or out of the compliance with the WTO."

DEAL WITHOUT INDIA?

Diplomats say India could technically trigger a trade dispute if it caused the deal to collapse, although nobody wanted to threaten legal action at this stage.

Supporters of the agreement say it could add $1 trillion to the global economy and create 21 million jobs.

As officials in Geneva scrambled to rescue the agreement, Trade Minister Nirmala Sitharaman said New Delhi's position remained unchanged.

An Indian government source added separately that the Bali deal need not collapse even if the July 31 deadline is not met.

But several diplomats said New Delhi's stance could derail the whole process of world trade liberalisation, leading some WTO nations to discuss a last-ditch plan to exclude India from the agreement.

"If India does end up blocking (on Thursday) there is already a group of members who are interested in pursuing that path," a source involved in the discussions said.

"A dozen or so" of the WTO's 160 members had informally discussed pushing ahead with the trade facilitation agreement with less than 100 percent participation, the source said.

BLOW TO TRADE REFORMS

Technical details would still have to be ironed out, but there was a "credible core group" that would be ready to start talking about a deal without India when WTO diplomats return from their summer break, according to the source.

"What began as a murmur has become a much more active discussion in Geneva and I think that there are a lot of members in town right now that have reached the reluctant conclusion that that may be the only way to go."

An Australian trade official with knowledge of the talks said a group of countries including the United States, European Union, Australia, Japan, Canada and Norway began discussing the possibility in Geneva on Wednesday afternoon.

New Delhi cannot be deliberately excluded, since that would mean other countries slowing down containers destined for India, but if it becomes a "free-rider" it will add another nail in the coffin of attempts to hammer out global trade reform.

Ricardo Melendez-Ortiz, chief executive of Geneva-based thinktank ICTSD, said the WTO may be at a tipping point and India's action could end efforts to reach global trade deals.

"Why not go on and just continue to move in the negotiations at different speeds with different countries as they are ready to move? It's pragmatic," he said. Traditionally such an approach has been anathema to India.

He suggested one compromise would be to leave India out but give it the option of joining later if its demands were met.

Trade diplomats had previously said they were reluctant to consider the idea of the all-but-India option for the customs pact, partly because it would be hard to exclude one country and partly because the agreement in its current form requires an amendment to the existing WTO treaty, which appears to make India’s cooperation vital.

Others pointed out that many countries, including China and Brazil, have already notified the WTO of steps they plan to take to implement the customs accord immediately.

Other nations have begun bringing the rules into domestic law, and the WTO has set up a funding mechanism to assist.

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